Until this decade, law has treated the telephone network as a public accommodation, meaning that non-discriminatory access to the network, known as network neutrality in the current policy debate, was assured. On the Internet, though, non-discriminatory access leads straight to the erosion of the telco/cableco business model by third parties that would not behave as “rational competitors."

Rational competition is the idea that corporations, knowing their own costs, and their competition’s pricing, will price their products to maximize profits. It is tied up in the language of predatory pricing. Some economists argue that predatory pricing is rare, because it is, in fact, irrational. By using the term “rational competition”, the incumbents are indirectly seeking to position service providers who use the internet as their means of delivery as price predators.

The flaw in the incumbent’s argument is twofold: it presumes that the cost of the commodity sold remains relatively constant, and it presumes a lack of fungibility—that there are no substitutes for the commodity being sold. Voice on the Internet represents a dramatic shift. It provides consumers with a substitute commodity, at a much lower cost basis. Furthermore, it may provide consumers with newer and better products at lower cost.

The doctrine of “rational competition” itself is suspect. Price is a tool in the marketers kit bag that can be used to establish position in the customers mind, or to gain market share, to name two other goals. Profits are not the only measure by which the success of an enterprise can be measured.

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Alec Saunders, CEO, iotum. To visit the weblog maintained by Alec Saunders
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